Audley Capital Calls on Walter Energy to Disclose Mine-Level SG&A in
Relation to Peers
Requests that Company Provide Analysis Detailing SG&A Per Ton of Production
Compared to Peer Group Average
Believes Company’s Corporate-Level Disclosure is Misleading and Embellishes
Overall SG&A Reductions
Business Wire
NEW YORK -- April 17, 2013
Audley Capital Advisors LLP (including certain related funds and investment
vehicles, “Audley Capital”) today called on Walter Energy, Inc. (NYSE: WLT)
(TSX: WLT) (“Walter Energy” or “the Company”) to provide per ton of production
(“mine-level”) SG&A analysis compared to the average of its peer group since
the completion of the Western Coal acquisition in April 2011, or for the
fourth quarter of 2012. Audley Capital believes that stockholders deserve the
transparency of mine-level analysis, which is arguably one of the most
important metrics in met coal production.
For the purposes of analysis, Audley Capital uses a comparable group for
Walter Energy that includes Alpha Natural Resources, Arch Coal and Peabody
Energy. Audley Capital notes that all of the peer companies report mine-level
SG&A while Walter Energy chooses to allocate overhead costs from individual
mines to corporate-level SG&A, an opaque reporting threshold.
Stockholders Are Entitled to an Explanation…and Accountability
Alpha Natural
Q4 2012 Walter Energy Resources Arch Coal Peabody
(US$m)
SG&A / Sales 6.0% 3.2% 3.6% 3.3%
SG&A / Total costs & 5.0% 3.1% 2.8% 3.7%
expenses
SG&A / Ton^(1) $9.00 $1.90 $0.97 $1.05
^(1) Tons of coal sold
In its report dated April 12, 2013, Institutional Shareholder Services (“ISS”)
makes reference to the Company’s poor cost management, stating*:
“The dissident believes that the board has done a poor job of managing its
costs. This is particularly evident in its administrative expenses, which in
total are high relative to peers but extremely high on a per-ton basis, which
the dissident believes is a more appropriate metric. The difference is
striking: a $9.00 cost per ton at Walter compares to a $1.31 average cost. The
dissident notes that Peabody operates in two hemisphere (the US and
Australia), so Walter’s international operations in Canada and the UK cannot
be the main reason for this disparity.”
Julian Treger, Managing Partner of Audley Capital Advisors, said, “We do not
believe the Company’s argument that its SG&A expense levels are higher than
peers given the accounting treatment of mine-level SG&A and spending on
commercial activities based on the broad geographic base of its customers. We
believe that this is another attempt by the Board to skew realities and
disguise underperformance. We believe that by only examining SG&A costs on a
corporate level and omitting SG&A detail at the mine-level, Walter Energy is
likely overstating overall SG&A reduction. We call on the Board to immediately
disclose a more comparable mine-level analysis detailing SG&A expenses per ton
of production against its peer group average. We believe that this breakdown
should reveal a very different outcome for the Company’s SG&A reduction.”
Mr. Treger continued, “This disclosure is critical as our analysis discovered
a more than 400% difference in per ton spending on administrative overhead
versus the Company’s disclosures. When studied by our director nominees, we,
as a collective group, believe that when costs are as significantly out of
line as they are at Walter Energy, it is not a function of accounting
practices or sales efforts but an entrenched culture of undisciplined spending
and lack of accountability.”
Mr. Treger concluded, “Stockholders have been presented with an opportunity to
elect responsible, sophisticated new Board members that should contribute not
only to the superior oversight of the Company’s operations and its balance
sheet but also institute more stockholder-friendly corporate practices,
including a higher level of transparent disclosures. We call on all
stockholders to support positive change at Walter Energy and vote the gold
proxy today.”
Audley Capital urges stockholders to vote FOR its five director nominees by
immediately completing and returning the GOLD proxy card or by submitting
proxies by telephone or through the Internet. Investors that have any
questions or need assistance voting their shares should call Audley Capital’s
proxy solicitor, Okapi Partners LLC, at (877) 208-8903.
Additional Information
Further information regarding the director nominees and other persons who may
be deemed participants, and other matters, are set forth in a definitive proxy
statement filed with the Securities and Exchange Commission (“SEC”).
SHAREHOLDERS OF THE COMPANY ARE STRONGLY ADVISED TO READ THAT PROXY STATEMENT,
BECAUSE IT INCLUDES IMPORTANT INFORMATION. THE PROXY STATEMENT IS BEING SENT
TO SHAREHOLDERS BY OR ON BEHALF OF PARTICIPANTS, AND IS ALSO AVAILABLE AT NO
CHARGE ON THE SEC’S WEBSITE AT http://www.sec.gov.
* Permission to quote from the ISS report was neither sought nor obtained.
Contact:
Investors:
Audley Capital Advisors LLP
Julian Treger, Managing Partner
+44 20 7529 6900
or
Okapi Partners LLC
Bruce Goldfarb/Charles Garske/Patrick McHugh
212-297-0720
or
Media:
Sard Verbinnen & Co
Dan Gagnier/Brian Shiver
212-687-8080